Inspector General

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT THE INSPECTOR GENERAL Regional Inspector General for Audit MANILA USAID/Indonesia Should Not Continue Funding The Eastern Islands Agricultural Education Project USAID/Indonesia Memorandum Audit Report No. 2-497-84-07 July 12, 1984 The project goal of establishing a viable Association of Eastern Islands Universities in Indonesia to serve the needs of the ten member institutions probably cannot be achieved. We recommend that USAID/Indonesia terminate the project and deobligate unneeded project funds* which might total $2 million. TO : William Fuller July 12, 1984 Director USA ID/Indonesia FROM : Frank A. Dickey Acting RIG/A/M SUBJECT : Memorandum Audit Report No. 2-497-84-07 "USAID/Indonesia Should Not Continue Funding The Eastern Islands Agricultural Education Project SUMMARY The project intent of establishing a viable Association of Eastern Islands Universities Secretariat ini Ujung Pandang to serve the needs of the ten member institutions has not been and probably cannot be achieved. The Association remains a cnsortium and Goverment of Indonesia (GO!) regulations are ambiguous regarding the authority for GO! funding of consortia. Association activities are funded through the GO! budget process of each member university. Consequently, each individual member plans and implements Association activities without central direction or focus. Under this arrangement, it is difficult, if not Impossible, for the Association Secretariat to influence the activities of the member universities. In our opinion, additional, or continued, AID-funded technical assistance is unlikely to improve this situation. Therefore, we recommend that USAIU/Indonesia terminate the funding of the project, estimate the amount in excess of project requirements, and deobligate the unneeded funds. The Mission agrees with this reconmendation and has begun action to implement It. INTRODUCTION The primary objective of the AID-funded Eastern Islands Agricultural Education Project (497-0293) is to strengthen the network of eastern islands universities to develop and produce competent, qualified human resources to overcome a major constraint of Insufficient qualified agricultural faculty. Until 1976, the eastern islands universities worked in isolation to try to upgrade themselves, but It was believed that if they joined together in an association they could, through their cooperative efforts, improve more rapidly. Eight institutions (presently ten) formed the Association of Eastern Islands Universities In January 1976 to foster cooperation among the institutions and to improve higher education In the eastern region. (See Exhibit C for a list of the member universities.) Generally, the AID project was designed to provide technical assistance, training, and instructional materials to strengthen the Association. Further, the project was to help improve the efficiency and effectiveness of the mmber institutions in their agricultural development by supporting programs in the three broad functions of higher education: Instruction, research, and public service. Other major goals of the project are to make the universities' overall agricultural programs much more relevant, practical and responsive to the needs of the agriculturists of the region. The project was planned with a budget of $11.5 million, with AID providing $7.5 million (or 66 percent) of the project cost through Loan 497-T-059 dated August 15, 1979, in the amount of $5 million, and a grant agreement signed July 31, 1979, for $2.5 million, as amended. The GOI agreed to provide the local currency equivalent of $4 million (or 34 percent) of the project cost. As of September 30, 1983, $1.9 million and $1.6 million has been disbursed or accrued, respectively, from the loan and grant. A $5.5 million AID-funded contract with Washington State University (WSU), under Title XII of the Foreign Assistance Act, as amended, is the principal means of project implementation. The contract was effective October 15, 1979, and terminated June 30, 1984. The contract includes loan funding of $3 million to fund long and short term participant training and procurement of commodities and equipment. The grant portion of the contract provides funds of $2.5 million for salaries, travel, overhead, and support costs of WSU technical assistance personnel. (See Exhibits A and B for breakdowns of these costs.) PURPOSE AND SCOPE This is the first audit of the Eastern Islands Agricultural Education project. The audit covered the period from inception of the project in November 1979 through September 30, 1983, the date of our financial cut-off, and June 1984 for project operations. Our audit objectives were to evaluate the project accomplishments; the economy and effectiveness of resources committed to the project; compliance with terms of the loan and grant agreements; and propriety of costs incurred with AID funds. To meet these objectives, we interviewed USAID/Indonesia and GOI project officials, returned long term training participants, and AID-funded contractor personnel. We dlso reviewed the financial internal controls maintained over project funds. The report was discussed with Mission personnel and their views and written coments were considered in the final report. SOME PROJECT OBJECTIVES ARE BEING ACHIEVED BUT OVERALL PROGRESS HAS BEEN SLOW While there are significant shortcomings with the project that should have been, but were not, solved by project management, some project objectives are being achieved. Long and short term training has been conducted largely as planned. Other project activities have proceeded, but at a very slow pace. Participant Training The upgrading of faculty through training Is one objective of the project. 02 The project paper provides for training in the United States, other Southeast Asian countries, and within Indonesia. The project paper estimated that some 70 to 75 professors would receive graduate degree instruction. Most scholars were to receive master degrees, but a few of the most outstanding, perhaps 10 to 15, were to receive their doctorates. The contract with WSU did not target the number of participants to receive training, but specifies the training will be determined by the available resources and periodically evaluated in order to insure optimal utilization of resources. USAID/Indonesia and WSU project records report 36 long term participants were sent abroad, 29 to the United States and 7 to the Philippines. As of November 30, 1983, ten participants had completed their training and returned to their respective universities. Funding for the remaining participants is scheduled for completion on June 30, 1984. Thirty-one of the participants are candidates for master degrees and 5 are candidates for doctorates. Another 56 participants were selected for in-country graduate degree programs. Participants sent abroad for short term training as of November 30. 1983, numbered 40, of which 36 had completed training and returned to their sponsoring institutions. The rectors of the 6 universities visited emphasized the importance of staff development through the long term training provided under the project. However, one rector expressed the opinion that the AID project, while helpful, only provides a thin veneer of overall staff development for each Association member since each school had only a small percentage of its staff trained abroad. The number ranged from one to six per university. In-Counl,'ry Funded Project Activities Because of problems with the accounting system at the project office, loan expenditures were stagnant for about three years--from July 1980 to October 1983--for in-country project activities. This problem clearly hampered project implementation, but project officials were slow in taking remdial action. In-country funded project activities financed by the AID loan included training, instructional materials such as textbook production, library books, laboratory materials, audio visual materials, experimental farm equipment, network development, community service programs, and Association office and related costs. The estimated cost of these activities was $1.2 millicti. In July 1980, USAID/Indonesia advanced $71,231 followed by an additional advance of 82,000, a total of $153,231, to the Association for in-country project activities. The advance remained outstanding until August 1983, when it was accounted for with allowable project expenditures. During the same period, no loan funds were released for additional in-country project activities pending the clearing of the advance. The lack of an adequate financial accounting system was the reason USAID/Indonesia was unable to liquidate the advanci, and commit additional funds for in-country activities. The efforts of the USAID/Indonesia financial analysis staff and the placing by WSU of an administrative advisor in the -3 Association project office finally resulted in the development of a reliable accounting system. In September T983, the USAID/Indorssia Office of Finance issued the results of a review of the Association which determined that the accounting system was adequate. During our review of the Association project office in Ujung Pandang, we examined, on a test basis, the accounting system and records maintained for In-country costs, In our opinion, AID funds are being adequately controlled and accounted for with tLe WSU/Association accounting system. Conclusion Project implementation was hampered by the lack of an acceptable accounting system for over three years before

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